Just five years ago, in early 2018, holding company Kardan NV (TASE: KRNV) came close to selling engineering company Tahal to private equity firm Fortissimo for $120 million.
This week, at the end of a prolonged period of deterioration in its results, Tahal reached what looks like the end of the road, with a petition for protection from its creditors for the purposes of putting together a debt settlement. The company is insolvent, with debts of over NIS 400 million, chiefly to banks in Israel.
Tahal, which is active in water infrastructure in Israel and around the world, reached this nadir after many attempts to sell it to Israeli and overseas buyers, at ever decreasing valuations, failed in the past few years.
Last August, Gonen Betser, CEO of parent company Tahal Group, announced his resignation. He was replaced by Guy Elias, who is also CEO of the controlling shareholder in the company, Kardan NV, which itself has gone from one debt settlement to another in recent years.
Tahal is now asking for 60 days to formulate a settlement with its creditors. It owes NIS 210 million to Bank Hapoalim, NIS 90 million to Bank Leumi, NIS 67.8 million to Mizrahi Tefahot Bank, and NIS 20.5 million to HSBC. The remainder of its debt (over NIS 22 million) is to employees, state authorities, and suppliers.
Last year, the court approved a second debt settlement for Kardan NV, in which its bondholders received 90% of its shares against a haircut amounting to half of its NIS 1.5 billion debt. The collapse of Tahal, which was considered to be one of the sources for repaying the debt, could mean that this was not the last settlement for Kardan NV’s creditors.
Tahal itself was founded in 1942, before the foundation of the State of Israel, to plan transportation of water in the Jewish settlement in what was then Palestine, at the initiative of David Ben-Gurion. It became incorporated in 1961. Moving forward to 2018, when it was almost sold to Fortissimo, Tahal Group was headed by Sahar Bracha, who pushed the company into rapid expansion through ambitious projects overseas, mainly in Africa. This turned out to be a loss-making adventure that left Tahal with large debts and liquidity difficulties.
In late 2019, further attempts to sell Tahal were made, among them to private equity form FIMI and Shikun & Binui (at a valuation of just $12 million, a tenth of what Fortissimo had offered two years earlier). These attempts also failed, after the banks thwarted the sale to Shikun & Binui and later refused new guarantees for Tahal, where the liquidity problems were worsening.
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Bracha left in February 2020. A year earlier, Tahal Consulting Engineers states in its court petition, its subsidiaries failed to meet their financial covenants, and so their credit lines were not extended.
The company also cites high wage costs as a result of collective agreements signed in 2014 awarding extra severance pay to employees who left. Tahal Group currently employs 290 people, 68 of them in Israel.
Kardan NV’s financials show that water infrastructure (Tahal Group), which represents the activity of Tahal Consulting Engineers in water in Israel and globally, generated revenue of €62 million in the first nine months of 2022, and incurred a gross loss of €5.9 million, an improvement on the gross loss of €12.3 million in the corresponding period of 2021.
The company posted a net loss of €22.7 million in the period, versus a net loss of €30.7 million in the corresponding period of 2021. At the end of September 2022, Tahal had negative shareholders’ equity of €100 million and €5.9 million cash.
Published by Globes, Israel business news – en.globes.co.il – on January 17, 2023.
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